The Bank of Israel published its Financial Stability Report for the second half of 2024, assessing system stability amid the ongoing Swords of Iron War in Gaza and southern Lebanon and its expansion to other areas. The report concludes that Israel’s financial system has remained highly resilient, while macroeconomic risk stayed elevated and overall vulnerabilities moderated to a medium-high level. Macroeconomic risk remained high as economic activity stayed below its long-term trend, government financing needs and costs increased, Israel’s market risk premium rose, and credit rating agencies downgraded Israel’s rating while maintaining a negative outlook. Toward the end of the period, the risk premium and debt financing costs eased somewhat; local equity indices rose in the last quarter, though Israeli stock prices remained low in dollar terms relative to global indices. Housing and rent prices continued to increase alongside a recovery in transaction volumes, with the price-to-rent ratio stabilizing and slightly declining; vulnerability from asset price channels fell to medium-high. Credit delinquency remained stable and historically low, banks’ loan loss provisions declined, and credit risk moderated to medium-high; capital ratios improved for banks and insurance companies from already high levels. Two risk scenarios highlighted potential further pressures via the macroeconomic channel: a deterioration in the local geopolitical situation and heightened global uncertainty linked to deglobalization and weaker global growth. Starting in 2025, the Financial Stability Report will be published annually rather than semiannually.

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